Michigan Embraces BYOC Model

In comportment with legislation passed in 2016 that established a "state reliability mechanism," the Michigan Public Service Commission has issued guidelines designed to help all electric service providers (ESPs) in the state develop plans for assuring long-term electricity supply. The commission said that a key feature of Section 6w of Public Act 341 is a requirement that all ESPs in the state annually certify to the commission that they have sufficient generating capacity to serve their respective customers for at least the next four years. The commission related that the requirement applies to all kinds of ESPs, not just investor-owned electric utilities. That is, it said, the yearly capacity demonstration standard pertains to municipal utilities, electric cooperatives, and alternative electric suppliers, as well as traditional electric distribution companies. 

In explaining how ESPs can show they have the requisite capacity, the commission elected to follow what it termed a "bring your own capacity" (BYOC) strategy. The commission reported that to meet the BYOC test, an ESP would have to document that it either owns enough generating capacity of its own or has already contracted for sufficient resources to cover its forecasted capacity obligations for the next four years. 

The commission commented that an ESP can use whatever mix of resources it would like. For example, it said, some entities may already have ownership interests in various generating facilities sufficient to meet demand for the upcoming four-year period. Others may choose to construct new power plants or invest with partners in renewable energy projects. Still others may decide that they wish to fulfill their obligations solely via power purchase agreements. 

The commission suggested that yet another option could be the pursuit of conservation and demand reduction initiatives. But no matter which road an ESP opts to travel, the commission said, the BYOC approach is tailored to give them maximum flexibility in their resource planning. 

The commission noted that one aspect of the capacity obligation requirement had been hotly debated, that being whether all or any part of the BYOC standard should include a "locational" factor. According to the commission, because the new law is directed toward assuring reliability of supply, there is an expectation that at least some electric generation resources used in service to Michigan customers must themselves be located in the state. 

Indeed, the commission pointed out that the Midcontinent Independent System Operator (MISO), the regional transmission organization that oversees the grid in the area in which Michigan is located, had already determined that for 2017, almost 95% of the generation supplied to customers in the Lower Peninsula should come from within that specific territory. The commission remarked that Michigan's geography, being largely surrounded by water, obviously makes it more costeffective to rely on in-state resources rather than incur the costs of importing electric supply from out-of-state. 

Despite finding that it both has the authority to implement a "local clearing requirement" and that such would be in keeping with MISO's own practices, the commission declined to mandate any particular local generation resource standard at the present time. The commission stated that for this initial four-year cycle of the BYOC demonstration model, it did not see a need to establish a specific proportion of overall supply that is locally sourced. 

The commission elaborated that the record indicated that Michigan already has ample capacity to meet demand for the next five years, such that little would be accomplished by requiring preset levels of local capacity. Plus, the commission said, it could use the time provided by the first four-year BYOC period to further study the situation and reach a decision on the optimum way to structure any locational requirement so as to ensure both fairness to ESPs and attainment of reliability goals. 

Answering questions about whether the new planning standards mark any true improvement over past protocols, the commission said that the fundamental difference is that ESPs usually have looked ahead only one year at a time. The commission asserted that by having a four-year capacity demonstration horizon, reliability undoubtedly will be enhanced. 

The commission acknowledged that some also had questioned whether the new capacity obligation requirements will adversely impact retail electric choice offerings or cause rates to go up. The commission's response was that they may. The commission stated that electric utility rates are not apt to go up, but it conceded that alternative energy providers may have to revisit their business plans. 

However, observing that the vast majority of consumers in Michigan do not participate in choice programs and thus remain customers of the incumbent utilities, the commission deemed it unlikely that there would be any dramatic change in rates for most customers. And, the commission said, a longer-range planning term can be cost-beneficial and help keep costs lower by avoiding spotmarket purchases when prices might have spiked. 

As for filing requirements, the commission ordered all investor-owned utilities to submit their first four-year BYOC plans by December 1, 2017. Other ESPs will not have to tender their plans until February 9, 2018. Re Electric Supply Reliability Plans of Michigan's Electric Utilities for the Years 2017 Through 2021, Case No. 18197, Sept. 15, 2017 (Mich.P.S.C.).